Hill Bikes Unlimited uses a flexible budget and standard costs to aid planning and control of its bicycle production. You recently accepted a position with Hill Bikes and as part of your duties, you must review the variances and make a presentation to the companys executive committee (which is not made up of trained accountants).

As in the real world, sometimes things happen. Assume that the material you prepared was placed on top of some papers going into the shredder. (You know where this story is going..) After you realize your mistake, you rush into the shredding room to find that some of your pages and data have been shredded. This is all that is left:

Standard or budgeted costs and quantities:

Direct materials 2.0 meters of aluminum at $16 per meter

Direct labor 2 hours at $15 per hour

Variable OH Based on DL hrs, the standard or budgeted VOH rate is $9

Fixed OH Based on DL hrs, the standard or budgeted FOH rate is $23

Total Costs allowed for the actual quantity of output (flexible budget)

Direct Materials $608,000

Direct Labor $570,000

Variable OH $342,000

Variances Price (or spending) variance Efficiency variance

Direct Materials $25,000 Fav $ 32,000 Unfav

Direct Labor $30,000 Unf $30,000 Unfav

Variable OH $8,000 Fav ????

Fixed OH $6,000 Fav ????

Direct Materials price var per meter = $0.50 Fav

The Budgeted quantity of bikes is 20,000 units.

Given that you presentation is coming up soon, prepare a variance analysis using the 4-way chart / table (see attached template). Be sure to complete all totals along with the variances clearly marked as unfav or fav. Submit that template along with answers to the following questions.

• What was the actual quantity of bikes produced?
• How many meters of direct materials were actually purchased? (Hint: Use the variance and your knowledge of the budgeted price for materials to solve for actual price; then solve for the quantity.)
• Is VOH underapplied or overapplied? By how much? Is FOH underapplied or overapplied? By how much?
• Explain the Production volume variance (PVV)?
• Identify at least 3 of the variances (not the PVV) and explain to the executive board what the variances indicate. How is the firm doing?

Chpt 7 & 8 HW	Actual		Flexible Budget	OH Applied (This column only for OH)
Dir Mat	(AQI x AP)	(AQI x BP) ( x )	(AQI x BP) ( x )	[(AQO x BQI) x BP]
Dir Lab	(AQI x AP) ( x )	(AQI x BP) ( x )	[(AQO x BQI) x BP]
VOH QI = how we apply OH	(AQI x AP) Actual	(AQI x BP)	[(AQO x BQI) x BP]	Applied [(AQO x BQI) x BP]
FOH QI = how we apply OH	Actual	Master Budget	Flexible Budget	Applied [(AQO x BQI) x BP]

VOH or FOH Rate = $ Budgeted OH BQ_O = Budgeted number of units EXPECTED to be made

(BQ_O x BQ_I) BQ_I = Budgeted quantity of INPUTS for each units; INPUTS are whatever we use to

apply or allocate OH. (Most likely DL hrs or MHrs.)